What Makes Penetration Pricing Perfect in A Crowded Industry?
Say you’ve decided on this genius plan to market a product that’s going to change the industry forever, and it probably can.
The thing is, if nobody’s going to give you the time of day, or if your competitors are hell-bent on having a semi-monopoly over the market, it’s going to be very difficult to change the market for the better or worse.
The problem with having a great idea but low visibility is that it becomes extremely difficult to make any sort of impact, which is why penetration marketing comes into play.
As descriptive as the name is, it’s when you use a pricing strategy that allows your products to penetrate the market in a way that will force your competitors to take a step back, and help your prospects take a look at your product or service, we’re about to dive into penetration pricing strategies and why they are so good at helping you stand out in a crowded marketplace.
What is Penetration Pricing?
Penetration pricing is considered the #1 approach by many companies to attract and maintain a customer base.
It’s essentially when you rely on a low initial price to attract customers to a new product or service.
By offering a lower-than-usual price during your initial marketing campaign, you instill a FOMO effect on your prospects. After all, everyone knows it’s going to be a limited-time offer and that they have to check out your product before you start ramping up the price!
What you’re looking to gain from using a penetration pricing strategy is to get your prospects to take the first step, buying your product, and by doing that, you’ll be able to keep new customers once prices rise back up.
What are the Advantages of Penetration Pricing?
Boost Your Brand Growth
If you’re just starting out, it’s imperative that you grow your customer base as soon as possible, otherwise you’re going to have to make many concessions in the future in order to keep your brand afloat.
Penetration strategies offer the fastest growth results, you’re offering a lower-priced option with the same features and value, what’s not to like?
In addition to that, once you’ve created a demand for your product, that’s going to compound into
Attract More Customers
Just like the previous point, you can prevent your competitors from barring you from cutting into your market, and as a result, you’re going to attract more customers from them.
While your competitors are going to have to justify having a similarly featured product with a higher price point, many of their customers are going to be gravitating towards your lower-priced product that has a reasonable quality.
Lower Cost per Unit
If your penetration pricing strategy becomes a success, you’ll be able to afford to buy your production supplies in higher quantities.
While it does pose a certain risk, if you’re buying large quantities, your suppliers are going to offer bulk discounts for your purchases, which leads to a lower cost for your production.
Using that technique, you’ll be able to offset the cost of selling your products at such a low cost, and you’ll be offering low prices and generating a high volume of sales!
Alternatively, if you’re confident that your penetration pricing strategy is going to work perfectly, you can adopt a high risk, high reward method of buying in bulk when you’re just starting out, getting the bulk discount, and then burning through your inventory by using a penetration pricing strategy.
When Should You Use Penetration Pricing?
The thing with penetration pricing is that it’s not going to fit with every product or service. Just like how some products can really make the best of the penetration technique, other products might actually be significantly damaged.
The opposite of penetration pricing is the skimming strategy, that’s when you advertise your new products at high prices with a relatively high margin. This strategy works with luxury-like products because the primary audience would have low price sensitivity and prefer paying higher prices for the maximum amount of quality.
You should use penetration pricing when you:
Want to Prioritize Growth
Many companies consider penetration pricing as the #1 growth-inducing pricing strategy out there.
Keep in mind, however, that penetration pricing isn’t going to work ith all customer bases.
Similar to skimming strategies, sometimes you might enter a market with eager customers who are willing to pay a higher amount in order to get a better quality product.
In that case, you’re going to be having a hard time growing while you’re on a penetration pricing strategy.
In that case, you’re going to be wanting to appeal to a niche portion of your prospects with a selection of higher-quality materials at a higher price point.
However, that’s rarely going to happen if you’re planning on buying in bulk in order to grow your brand by flooding the market.
Are Wary of Your Competition
It’s not unheard of for there to be a “Big Three” monopoly in the market, for example, the soda drink market might be controlled by Pepsi, Coke, and another local soda brand.
In that case, if you flood the market with a lower-priced product that offers a unique taste, you’ll be able to directly ignore any interference from your competition, that’s because customers would prefer a lower-priced soda drink than a higher-priced one.
In addition to that, your competitors aren’t going to be able to justify reducing their price point just because an up-and-coming player joined the market, which will allow you to grow your brand without competitor interference.
Are planning on making up your initial loss with other aspects
Just because you’ve been able to succeed by selling lower-priced products doesn’t mean you shouldn’t be looking to minimize your costs and improve your profitability.
You can maintain a reasonable profit even if you’re selling at a lower cost than average, and the way to do that is to buy in bulk from your distributors and rely on bulk discounts to minimize production costs and get some profits in.
Has Penetration Pricing Worked Before?
It might sound like penetration pricing is a risky endeavor that doesn’t guarantee a high reward.
Actually, you’ve probably faced multiple instances of penetration pricing strategy products or services that you opted for without even realizing it.
Here are a few examples:
Streaming Companies
Remember waiting for your show to come on? Yeah.
It might’ve sounded like an impossible task to offer a streaming platform such as Netflix and have it compete with behemoths like OSN and cable TV.
However, by offering a trial period to prospective customers, it helps showcase how convenient streaming platforms are when compared to cable TV, and with a much-reduced price, why would you pick the latter?
Grocery Stores
Grocery stores might try to promote certain brands over others by reducing the price of certain food products.
They might even have exclusive sales on particular newer products that can help people visit these grocery stores and get additional products than the ones on sale.
Online Education Platforms
The big two, Udemy and Skillshare, what makes them so enticing?
Online educational programs and platforms have a way of increasing the number of recurring students.
You can sample programs and have trial versions of online courses that can help you figure out whether you’re interested in a digital course or not.
In addition to that, Udemy is known to have huge discounts on select courses (Up to 90%) for limited times, these courses offer a huge amount of value, and showcasing positive user ratings and reviews, it helps maintain that social proof.
By checking out these almost free courses, you’ll be taking the first step into checking out what the platform offers, and you’re more likely to be a recurring customer.
Video games
They are notorious for microtransactions. Nowadays, many video game companies are content with releasing fully finished games for free.
However, they incorporate paid features in the game system, these can range anywhere from cosmetics, to loot boxes where you can buy a chance to get a high-value item, or can be straight-up buffs to your game experience.
In addition to that, while the game itself may be free, the developers may opt to offer paid downloadable content that can majorly improve the game experience, The Sims video games is a series of life simulation video games that sold 200 million copies worldwide.
What they do is that they might have a slightly reduced price on their base game on release, and then they add multiple expansion packs that cost their users more money in exchange for enhanced gameplay.
Since individuals are more likely to accept purchasing from someone they’re familiar with, this technique made The Sims one of the best-selling video game series of all time.
We hope this article helped you understand the importance of using penetration pricing in order to improve the growth, and client base of your brand.
With Cosmic Advertising, we’re able to improve your brand strategy in such a way that you’ll be able to employ multiple brand-boosting strategies! Book a consultation meeting with us and check out the benefits.